Cyprus: Environmental Liability And Safety Of Offshore Oil And Gas Operations

Last Updated: 14 August 2013
Article by Elias Neocleous and Kyriacos Kourtellos

Directive 2004/35 on Environmental Liability with Regard to the Prevention and Remedying of Environmental Damage [2004] OJ L 143/56 of 21 April 2004 (the "ELD") establishes a framework of environmental liability based on the "polluter pays" principle, under which anyone causing pollution may be held liable for implementing and paying for any preventive and remediation actions that may be required to deal with the resultant environmental damage.

The ELD defines three categories of environmental damage: namely, damage to protected species and natural habitats, water damage and land damage.  While there is separate European legislation in relation to the first two categories (in the form of the 1979 Birds Directive, the 1992 Habitats Directive and the Water Framework Directive) there is no stand-alone legislation regarding prevention of land contamination.  Even so, the likelihood of liability acting as a deterrent against infringements of environmental legislation may increase due to the indirect consolidation of the legislation referred to above.

Member states of the European Union (EU) must designate a competent authority to fulfil the duties provided for in the ELD and ensure that it has the power to require relevant parties to undertake the necessary preventive or remedial measures.  The competent authority for Cyprus is the Environmental Authority of the Ministry for Agriculture, Natural Resources and Environment.  At first sight the non-government sector appears to have limited scope for involvement in environmental monitoring and sanctions, but in fact the judicial review process may provide a way for individuals and non-government bodies to keep an eye on regulatory action.  It appears that environmental liability plans may counter certain environmental damage, for example through the provision of funds for environmental restoration.  Nonetheless, the ultimate outcome of such liability plans greatly depends on the effectiveness of national environmental policies.

The ELD was transposed into Cyprus legislation through the Law on Environmental Liability with regard to the Prevention and Remedying of Environmental Damage 189 (I)/2007 (Official Gazette No. 4154 Pt. I of 31 December 2007) (the "ELL").  Article 3 of the ELL imposes strict liability on the operator in respect of the costs of prevention and remediation of environmental damage caused by any of the 'occupational activities' listed in Annex III of the ELL.  An 'occupational activity' is defined as including 'any activity carried out in the course of an economic activity or an undertaking, irrespectively of its private or public, profit or non-profit character'.  By contrast, damage to protected species and natural habitats caused by unlisted occupational activities will be subject to fault liability or negligence.  It may be argued that, although contentious, strict liability would act as a far more effective deterrent against environmental harm.

Significantly, article 4(2) of the ELD excludes oil pollution at sea from its scope.  However, the ELD was recently amended by the Council of Europe through the adoption of a directive on the safety of offshore oil and gas operations (the "Offshore Directive").  The Offshore Directive will enter into force 20 days after it is published in the Official Journal of the European Union and will apply to existing and future installations and operations.

The objectives of the Offshore Directive are to reduce the number of major incidents related to offshore oil and gas operations and to limit the consequences of any that do occur.  The Offshore Directive may therefore enhance the legal protection of the marine environment and coastal economies against pollution from offshore exploration and exploitation activities in the EU.

The minimum conditions set by the Offshore Directive will require operators such as drilling companies to demonstrate their capacity to cover potential liabilities deriving from their offshore oil and gas operations and to consider and take steps to mitigate the risk of environmental damage before the commencement of such activities.  Operators and member states are required to prepare internal and external emergency response plans with respect to installations and operations, so as to increase their effectiveness in dealing with incidents.

In order to prevent conflicts of interest during a licensing procedure, member states are required to distinguish between regulatory functions relating to offshore safety on the one hand and regulatory environmental functions relating to economic development, including licensing and revenue management on the other, so as to ensure the independence and objectivity of the relevant national authorities.  The Offshore Directive also provides rules for transparency and sharing of information, with the aim of improving the efficacy of environmental policies and actions by cooperation between member states.

The Offshore Directive covers all EU member states. Member states with offshore waters will be required to implement its provisions within two years of its entry into force, whereas landlocked countries will have to do so only after a relevant company registers in their respective jurisdiction and conducts operations outside the EU.  As Cyprus has offshore waters it will be required to implement the provisions of the Offshore Directive within the two-year timeframe.

It is self-evident that safety and environmental protection are vital, especially for an upcoming key player of the offshore oil and gas industry such as Cyprus.  For that reason, Cyprus should welcome this new environmental liability regulatory framework to ensure that its offshore oil and gas regime conforms to international best practice and safeguards our precious marine ecosystem from unwanted oil pollution.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Elias Neocleous
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